The Edge

The Edge

SERC Media Briefing on Quarterly Economy Tracker (Jan-Mar 2023)

To view Executive Summary of QET, please follow the link below:

2023Q1: Be Vigilant to Economic and Financial Headwinds
https://www.acccimserc.com/quarterly-economy-tracker/qet2023q1

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Please click the box below to download the full report and presentation slides:

For news coverage, please proceed to Activity page.
https://www.acccimserc.com/activities/activity-20230413

A. WORLD ECONOMIC OUTLOOK UPDATE

GLOBAL OUTLOOK SHAPED BY INFLATION, HIGHER INTEREST RATES, CHINA’S REOPENING AND RISK OF CONTAGION BANKING CRISIS

• Early positive signs of global indicators. The global economy is seemingly less gloomy than it was just several months ago at the beginning of 2023. Amid an on-going military conflict in Ukraine, headline inflation readings have eased from their peak levels. While China’s ending of its zero-COVID policy provides some global growth impulses, the magnitude of its positive impact on the global economy is being hurdled by global economic headwinds.

• Global macroeconomic environment remains challenging for economies, businesses and consumers in the year ahead. Inflation has moderated due to tighter monetary policy effects, and global food prices also softened from the peak. However, core inflation remains persistent, held up by strong service inflation and cost pressures from tight labour markets. The underlying pressures will require many central banks to maintain high policy rates well into 2024.

• Global monetary tightening continues, albeit less aggressively. Central banks are not giving up their inflation fight yet amid headline inflation has eased from the peak. While the peak in the Fed’s interest rates is nearing, it is still some time to go for some advanced economies given still elevated and persistent price pressures, especially core inflation.

• No let up in global headwinds. We continue to expect the global economy to grow below trend growth in 2023. The world economy will continue to face major headwinds, most notably from the fallout of a prolonged Russia's invasion of Ukraine, continued geopolitical tensions between the US and China; still elevated inflation pressure; global monetary tightening and tighter financial conditions; and the cost of climate change. Last but not least, are lingering concerns about the banks' turmoil in the US and Credit Suisse in Switzerland.

B. MALAYSIA ECONOMIC OUTLOOK UPDATE 

“NORMALISING” GROWTH – MALAYSIA WILL NOT BE IN RECESSION IN 2023

• The Malaysian economy continues growing, albeit slower in 2023. After staging a strong recovery growth of 8.7% in 2022 post the COVID-19 pandemic, the Malaysian economy is expected to normalise to an estimated 4.1% in 2023 on a more sustainable pace of private consumption, which made up 60.2% of total GDP in 2022. Exports, which had been a strong contributor to the economy, have displayed slowing momentum since late 2022.

• Re-tabled Budget 2023 focuses on rebuilding economic resilience. The re-tabled new Budget 2023 with a record RM97.0 billion allocation of development expenditure is crafted to sustain the strength of the economy against the still challenging and uncertain external environment. There were measures and initiatives to help cope with the rising cost of living pressures, increase income and employment opportunities, improve business facilities and the competitiveness of SMEs, restore the tourism industry, and drive digitisation and automation as well as ESG agenda.

• Headline inflation pressure has eased off from the peak. Headline inflation held steady at 3.7% yoy in February 2023 (3.7% in January vs. 3.3% in 2022). The rise in price inflation particularly in food and beverages; housing, utilities and other fuels; education; and restaurants and hotels was offset by the price moderation in transport and recreation and culture.

• BNM will likely increase the policy rate to 3.00%. We expect Bank Negara Malaysia to remain on guard against inflation while supporting the economy. BNM stated that any adjustment to the degree of accommodation will take into consideration the evolving global and domestic conditions and their implications on the overall outlook of domestic inflation and growth. It remains vigilant to cost factors, including those arising from financial market developments, that could affect the inflation outlook.

Please click the box below to download the full report and presentation slides:

透视大马

THE STAR

南洋商报

The Star

中国报

• “Slow and normalising” growth in 2023. The Malaysian economy will not be in recession. Following a strong expansion of 8.7% in 2022, Bank Negara Malaysia’s (BNM) estimate of between 4.0% and 5.0% (point estimates of 4.5%) in 2023, is in line with SERC’s estimate of 4.1%. 

• Domestic demand is calling the shots. With exports expected to slow substantially, domestic demand will be holding the fort to deliver the expected economic growth for 2023. While the improvement in the labour market and wage growth will support consumer spending, we caution that still elevated inflation and cost of living as well as higher interest rates would take off some steam from household spending. Private investment growth, largely underpinned by investment in the manufacturing sector, will continue to expand moderately amid higher cost pressures and cautious global economic prospects. 

• Both headline and core inflation are expected to moderate but remain elevated in 2023. Bank Negara Malaysia expects both headline and core inflation to vary between 2.8% and 3.8% in 2023 (3.3% and 3.0%, respectively, in 2021). Global cost environment has moderated, thanks to lower average prices of key commodities amid improving supply constraints and softening global demand. Inflationary pressures would ease in 2023.

• The Monetary Policy Committee (MPC) will continue to calibrate the monetary policy settings that balance the risks to domestic inflation and sustainable growth. We expect the overnight policy rate (OPR) to return to its normalcy, taking it to 3.00% by end-2023.